Ocado pledges it will make a profit despite another year of losses

The chief executive of Ocado has pledged that the online grocery retailer will
“make hundreds of millions of pounds” in the future despite reporting
another year of annual losses and warning it is also unlikely to make a
profit in 2013.

Ocado announced it will open a second a second fulfilment centre in Dordon in the Midlands, where it expects to create more than 1,000 jobs.

Ocado said that pre-tax losses narrowed to £0.6m in the 53 weeks to December 2, from £2.4m in 2011, sending shares in the company up 11pc. However, the 2012 numbers include an extra week compared to 2011. When this is stripped out, the pre-tax losses increase to £1m for the 52 weeks.

Ocado’s financial results also remain significantly below forecasts published when the online grocer floated in 2010. Numis, for example, forecast that the company would deliver revenues of £824m and pre-tax profits of £12m in 2012. In fact, revenues only reached £678.6m, despite growing 13.4pc, and Ocado still remains in the red.

Duncan Tatton-Brown, chief financial officer, said earnings in 2013 will be reduced by a depreciation in the value of Ocado’s new distribution warehouse in Warwickshire, which starts delivering products to customers later this month and is vital to the company’s future growth prospects.

The Dordon-based centre cost more than £200m to build and will create 1,000 jobs. But forecasts in the City suggest that depreciation for Ocado will increase from £29m to £40m this year as the value of that investment declines.

Philip Dorgan, analyst at Panmure Gordon and a long-time critic of Ocado, said: “We knew before this announcement that Ocado had had a disappointing year, failing to deliver the level of accelerated sales growth that it had anticipated.

“Looking forward, much now depends upon the performance of CFC2 [the new distribution centre], which opens soon.

“That said, we think that the debate now moves on to whether the company’s assets are attractive to either Marks & Spencer or Morrisons – both lacking and needing an online food offer – and, if so, at what price?”

However, despite Ocado failing to make a pre-tax profit since it was founded in 2000, shares in the company have almost doubled since it secured breathing space from its banks with a £36m share placing last November. The retailer has also been boosted by Sir Stuart Rose, the former chief executive of M&S, agreeing to become chairman.

Tim Steiner, chief executive, said: “We continued to achieve double-digit sales growth during 2012 with increasing rates of sales and new customer momentum as we moved into 2013.

“This has been driven by further improvements to our core offer to customers – better value, wider ranges and enhanced service.”